DULUTH, Ga. — AGCO, Your Agriculture Company (NYSE:AGCO), a worldwide manufacturer and distributor of agricultural equipment, reported net sales of approximately $1.6 billion for the first quarter of 2016, a decrease of approximately 8.4% compared to net sales of approximately $1.7 billion for the first quarter of 2015. Reported net income was $0.09 per share for the first quarter of 2016 and adjusted net income, excluding restructuring and other infrequent expenses, was $0.11 per share. These results compare to reported net income of $0.34 per share and adjusted net income, excluding restructuring and other infrequent expenses, of $0.43 per share for the first quarter of 2015. Excluding unfavorable currency translation impacts of approximately 5.2%, net sales in the first quarter of 2016 decreased approximately 3.2% compared to the first quarter of 2015.
First Quarter Highlights
- Regional sales results(1): North America (11.6)%, Europe/Africa/Middle East (“EAME”) +4.2%, South America (21.2)%, Asia/Pacific (“APAC”) +19.4%
- Regional operating margin performance: EAME 7.6%, North America (0.2)%, South America 0.3%, APAC (3.5)%
- Inventory at March 31, 2016: approximately $109 million lower than March 31, 2015 on a constant currency basis(1)
- Full-year earnings per share guidance remains at $2.30
- Share repurchase program reduced outstanding shares by 1.4 million
- Quarterly dividend increased 8% to $0.13, effective first quarter of 2016
(1)As compared to first quarter 2015, excludes currency translation impact. See reconciliation of Non-GAAP measures in appendix.
“AGCO’s first quarter results reflect the cyclicality and seasonality of our industry,” stated Martin Richenhagen, AGCO’s chairman, president and chief executive officer. “As anticipated, global market conditions continued to weaken, impacting our revenue and margin performance. In addition, our first quarter results reflect the impact of lower production to manage dealer and company inventory levels in advance of the spring selling season. At the end of March, inventory levels at AGCO were approximately $110 million below prior year levels on a constant currency basis, and we continue to make progress reducing dealer inventory as well. While our focus on cost management to mitigate market pressures continues, we are maintaining a strong level of investment in new products and technologies, as demonstrated by an increase in engineering expense planned for 2016 compared to 2015. We are confident that these investments along with initiatives in market development, factory efficiency and improved service levels will drive long-term benefits for AGCO.”
Market Update
“Growing global grain stocks are pressuring commodity prices, and estimates call for 2016 farm income to remain below 2015 levels,” continued Mr. Richenhagen. “In North America, weaker income prospects for row crop farmers resulted in significantly lower industry retail sales of high-horsepower tractors, combines and sprayers. Higher industry sales of small and mid-size tractors, due to more normal conditions in the livestock sector and general economy, have provided a partial offset to the decline in large agricultural equipment. First quarter industry retail sales in Western Europe declined more modestly from 2015 levels. Milk prices declined further, and demand from dairy producers remained weak, while lower commodity prices kept market demand soft from the arable farming segment. Significantly lower industry retail sales in the United Kingdom and Germany were partially offset by increases in France and Finland. Regional industry demand declined more severely in South America during the first quarter. In Brazil, growing political and economic uncertainty is impacting farmer confidence, resulting in substantially lower end-market demand for equipment. More supportive government policies in Argentina have contributed to higher sales in that market. Despite the difficult conditions experienced in the first quarter, we remain confident in the long-term fundamentals supporting commodity prices and farm income as well as healthy growth in our industry.”
Regional Results
North America
AGCO’s North America net sales decreased 11.6% in the first three months of 2016 compared to the same period of 2015, excluding the negative impact of currency translation. Dealer inventory reduction efforts and softer industry demand, particularly from the row crop sector, contributed to lower sales. Declines in sales of sprayers, implements and high horsepower tractors were partially offset by modest growth in parts and low horsepower tractor sales. Lower sales and production volumes along with a weaker sales mix contributed to a reduction in income from operations of approximately $18.2 million for the first three months of 2016 compared to the same period in 2015.
South America
Net sales in the South American region decreased 21.2% in the first three months of 2016 compared to the first three months of 2015, excluding the impact of unfavorable currency translation. Significant sales declines in Brazil were partially offset by growth in Argentina. Income from operations decreased approximately $12.7 million for the first three months of 2016 compared to the same period in 2015 due to lower sales and production volumes, the negative impact of currency translation and a weaker mix of sales.
Europe/Africa/Middle East
Net sales in AGCO’s EAME region increased 4.2% in the first three months of 2016 compared to the same period in 2015, excluding unfavorable currency translation impacts. Higher sales in France and Scandinavia were partially offset by sales declines in Germany, the United Kingdom and Italy. Income from operations decreased approximately $10.2 million for the first three months of 2016, compared to the same period in 2015, due to a weaker sales mix, higher engineering expenses as well as unfavorable currency translation impacts.
Asia/Pacific
Net sales in AGCO’s Asia/Pacific region, excluding the negative impact of currency translation, increased 19.4% in the first three months of 2016 compared to the same period in 2015 due primarily to increased sales in China. Losses from operations decreased approximately $9.1 million in the first three months of 2016, compared to the same period in 2015, due to higher sales and production levels in China.
Outlook
Lower industry demand for farm equipment across all regions is expected to continue to negatively impact AGCO’s sales and earnings for the remainder of 2016. AGCO’s 2016 net sales are expected to reach $7.0 billion. Gross and operating margins are expected to be below 2015 levels due to the negative impact of lower sales and production volumes, a weaker sales mix and increased investment in product development. Benefits from the Company’s cost reduction initiatives are expected to partially offset the volume-related impacts. Based on these assumptions, 2016 earnings per share are targeted at approximately $2.30, excluding restructuring and other infrequent expenses.
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